The virtual asset industry is bracing for a challenging period as sanctions loom over Upbit.

The virtual asset industry is experiencing increasing tension as it prepares for upcoming inspections and sanctions from regulatory bodies. This comes after the sector was officially regulated last July with the introduction of the Act on the Protection of Virtual Asset Users.

Financial regulators are actively moving forward with penalties against Upbit, the nation's biggest cryptocurrency platform, due to accusations of breaching customer verification procedures and engaging in dealings with unregistered virtual asset entities.

Since initiating an on-site investigation of Upbit in August, the Financial Intelligence Unit (FIU), operating under the Financial Services Commission (FSC), has reportedly discovered hundreds of thousands of instances where Know Your Customer (KYC) obligations were not met.

Financial institutions are mandated to check identification documents to verify the true identity and transaction intentions of clients as part of anti-money laundering measures. However, it is alleged that Upbit did not perform these checks properly.

Additionally, authorities are examining Upbit's interactions with unregistered virtual asset providers.

Unregistered virtual asset operators are exchanges that function without complying with the registration requirements of the nation's Act on Reporting and Using Specified Financial Transaction Information. These mainly encompass foreign exchanges that serve local customers.

In the course of the on-site inspection, numerous instances were found where Upbit users allegedly transferred virtual assets to these unregistered entities.

Potential penalties for Upbit could involve limitations on new customer virtual asset withdrawals, disciplinary actions against executives and staff, and monetary fines.

The Financial Intelligence Unit (FIU) plans to conclude on the sanctions after hearing from Dunamu, Upbit's operator, at the upcoming sanctions review committee meeting scheduled for Tuesday.

The severity of the sanctions could be adjusted during this process, and there might be further review meetings in the future.

An official from the Financial Services Commission (FSC) stated, "Nothing has been decided yet, as the sanction procedures are still ongoing."

In response, a Dunamu spokesperson commented, "We will provide a thorough explanation through the upcoming procedures, including the sanctions review committee."